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Don't Buy Nokia, Microsoft

Microsoft and Nokia don't make a lot of sense as a couple.

The New York Times' popular deal blog is going over the calamitous situation at Nokia(NYSE: NOK) and the buyout opportunities it may birth.

"We poured gasoline on our own burning platform," CEO Stephen Elop writes in a self-scorching company memo that was leaked this week. "Nokia, our platform is burning."

DealBook goes over a few possible acquisition possibilities for the Finnish handset maker to regain its mojo, as well as a few assets it could unload to either extend its shopping spree or simply prop up shareholder value.

Then we get to Microsoft(Nasdaq: MSFT).

"There is also the prospect that -- at some point -- Microsoft could try to acquire Nokia," DealBook's Evelyn Rusli writes.

She alludes to buyout talks that the two meandering giants had last year, according to someone "close" to Nokia. I believe that the two companies may have had exploratory talks last year, but there's no way that they're hooking up now.

What would this accomplish exactly?

Elop's memo concedes that Apple(Nasdaq: AAPL) owns the high end of the smartphone market and that Android is a "gravitational force" for the masses and innovative developers. There are no voids for Nokia's Symbian or even Microsoft's Windows Phone 7 to fill. What's the point of shacking up?

Nokia still commands 32% of the global handset market, but that's largely the old-school phones for folks around the world who can't afford smartphones. Nokia and likely Microsoft are too late for the next wave.

Microsoft is a software company. What would it want in a manufacturing intensive Nokia?

Research In Motion(Nasdaq: RIMM) would be more up Mr. Softy's alley, but that rumor never exactly panned out.

"I'm fairly certain they have a standing offer to buy them at $50 (a share)," Canaccord Adams analyst Peter Misek told Reuters about Microsoft snapping up RIM three years ago. The BlackBerry maker went on to dip well below the $50 mark, but a prudish Microsoft never whipped out an engagement ring.

Why would Microsoft buy Nokia when it never proposed to RIM?

RIM has 55 million active BlackBerry owners on its rolls, and growing. RIM's revenue climbed 40% in its latest quarter. Nokia's top inched a mere 6% higher. RIM's net margins are four times greater than what Nokia's low-margin endeavors produce. Both RIM and Nokia command enterprise values in the $31 billion to $35 billion range. If you're Microsoft, why would you take Nokia over the more logical fit in RIM? A software partnership -- as Bloomberg is reporting may be in the works this morning -- makes sense. A complete combination would be a head-scratching travesty.

It doesn't make sense, and I'm not even arguing for Mr. Softy to shack up with RIM. I'm just bringing it up because Microsoft and Nokia go together about as well as Mel Gibson and Lindsay Lohan. They may be out of favor these days, but it's no reason to force them into a loveless marriage.

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Longtime Fool contributor Rick Munarriz admits to being one of Microsoft's vocal critics, though he was impressed with the company's quarter. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has adisclosure policy.

Author

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time with more than 20,000 bylines over those 22 years. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he splits his time living in Miami, Florida and Celebration, Florida.
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